EU Probe Could Force EMI, Time Warner to Divest Assets

Time Warner Inc.’s planned merger of its music unit with EMI Group faces a full European Union antitrust probe, possibly forcing the two companies to sell assets to win regulatory approval, the EU said.

The European Commission said it will take four more months to review the merger deal, which would create the world’s biggest recorded-music company and whittle down the industry to four major competitors worldwide.

EU regulators will focus on the companies’ potential dominance of recorded music, music publishing and digital delivery of music via the Web, the commission said.

“As consolidation in the industry continues, there are fewer and fewer choices for artists to work with to get their music made and published,” said Eric Scheirer, analyst at Forrester Research Inc. “It then becomes very difficult for artists to gain new leverage, especially if [the company] controls digital delivery.”

Time Warner and EMI are the two biggest companies in music publishing, the business of owning and licensing rights to compositions. Together they would own more than 2 million song copyrights and generate a fifth of global music sales.

A so-called second-phase investigation, reserved for only about 10% of EU merger reviews, often forces companies to sell assets or scale back their business in order to win antitrust approval.

” We are confident we will attain approval during the second half of the year and remain on track to close the transaction by year-end,” Time Warner said in a statement.

European music industry associations have been lobbying the commission to extract concessions from Time Warner and EMI, fearing the new company would raise entry barriers in the industry.

EMI officials have said the new company would control 20% of European and global music publishing business.

The commission also is reviewing a separate though related transaction, the $146-billion purchase of Time Warner by America Online Inc. to create the world’s largest media and Internet company. This combination would help Warner EMI Music to sell and promote artists via AOL’s Internet capabilities.

That has music organizations concerned that Warner EMI Music may cut fees paid to artists, especially as more music is sold on the Internet.

Time Warner and AOL have offered to scale back their business, without publicly detailing how. The commission is scheduled to rule Monday on whether to clear the merger or take four more months to investigate, as most analysts and lawyers expect.

The commission can block or force changes to mergers between companies with combined global sales of 5 billion euros ($4.81 billion) and EU sales of 250 million euros each, even if the companies are from outside the 15-nation EU.